What Does Tax Money Pay For?

By Staff

This guest post comes from Michael, a contributing editor of the Dough Roller, a personal finance and investing blog, and Credit Card Offers IQ, a credit card review site.

I’m willing to bet that if you turned on CNBC, CNN or MSNBC right now, within 10 minutes you would hear someone talk about how taxpayer money is being wasted.  Well in order to understand if it’s being wasted you would first have to know where your money is supposed to be going, then decide whether or not the venture in question is worth the change of course.  Most Americans would be able to tell you that tax money pays for schools and roads and protection, but do you know just how much of your tax money goes to these liberties?

Assuming that an American pays $100 in federal taxes a week, which are directly drawn from their paycheck, this is how the government would spend each and every one of those dollars.

The biggest chunk of taxes is spent on a category called “Income Securities”.  While it sounds somewhat exotic, the majority of this category can be broken down into four well-known sub-categories.

  1. Social Security ($11.50) – Hopefully, I will be able to cash in on social security when I become of age but there are no guarantees.  At $11.50, it’s the second largest tax expense today.
  2. Welfare ($4.60) – Welfare is a taxpayer-funded program that provides assistance to taxpayers that can no longer support themselves.  A heavily abused program.  Roughly 5 million Americans receive welfare checks on a regular basis.
  3. Disability ($3.50) – Disability is a government program that assists those who are physically or mentally disabled and are unable to earn enough money to support themselves.
  4. Unemployment Insurance ($1.70) – With the unemployment rate as high as it’s ever been, unemployment insurance goes to fund just that, unemployment.  When the unemployment rate rises, so rises the percentage of your taxes that goes toward this service.

No offense to the older population, but you guys are just gobbling up the tax money, aren’t you?  Medicare is the main component of this category, which provides discounted care for anyone over the age of 65 or usually anyone with a disability.  Another service provided under this heading would be Medicaid, which provides healthcare to low and no income families.

A close third, the defense of the county is a heavy taxpayer bill.  If the country is not fighting or preparing to fight a war, you can expect this amount to be lower, but right now, the breakdown within defense is as follows:

  1. National Defense ($13.20) – As you can expect, the bill for national defense is the largest tax expense paid by the American public today.
  2. Police ($2.70) – Not as much money as you think would go to the nations police officers, but one of the most important and overlooked portions of your tax dollars at work.
  3. Prisons ($1.80) – Sadly, this number continues to increase each and every year as most prisons are grossly overpopulated.  The tax dollars going toward prisons may surpass the ones going to police officers very soon.
  4. Courts ($1.20) – Public defenders, judges, prosecutors and other legal occupations are classified under the courts category.
  5. Firefighters ($0.80) – Firefighters deserve twenty times this much, but for now they are on the low end of the tax totem pole.

Only ~16% of taxes are put toward education, and when budgets needs to be trimmed, the first place most politicians look is toward the education system.  There are two major components of education and one secondary component.

  1. Elementary and Secondary Schools ($11.70) – Grammar schools, elementary schools and high schools take up most of the funds.  Amazing that with that much money put toward education, there are still as many problems as there are.
  2. Public College ($2.80) – State Universities receive this portion of your taxes which helps reduce the annual cost of attending a public university.
  3. Libraries ($0.70) – With the Internet as popular as ever, public libraries continue to be shut down across the country.

You didn’t think all of those politicians worked for free did you?  Running the US government carries a hefty tax price tag.

  1. Borrowed Money ($9.00) – Because taxes never foot the entire government budget, borrowed money means interest payments.  Seems like such a waste of money to have 9% of our taxes pay for nothing more than interest.
  2. Legislative and Executive Branches ($2.10) – The President of the United States certainly makes a very meager salary, but when you consider all of the politicians in Washington, it adds up fast.
  3. Collecting Taxes ($1.10) – The main component here would be the IRS.  Weird to collect taxes that pay to collect taxes.  Defeats the purpose a little bit.

With the major areas already taken care of, there are still a few decent size tax programs that do not fall into one of the above categories.

  1. Roads ($2.50) – The government should probably set up a pot-hole tax program as well, because it seems every time I move, I find bigger and deeper potholes in the roads close to my home.
  2. Air and Water ($0.70) – The purification of air and water has become big business over the last 20+ years and the government is always looking for ways to keep things even cleaner.
  3. Public Parks ($0.70) – Conserving what’s left of the great outdoors is a high priority in my opinion, and I hope when I finally get around to traveling, all of the major parks are still around.
  4. Space Program ($0.30) – Every time NASA sends up a new $20 billion satellite, give yourself a pat on the back.

So there you have it.  The next time you pay your end of the year taxes or think that Uncle Sam is screwing you, you know exactly where your money is going.  The realization is that most of the above programs are very necessary to keep the US of A growing, and it’s really hard to dispute any of them.